Oil deal with China may be solution to sea dispute – Carpio

Pia Ranada
Oil deal with China may be solution to sea dispute – Carpio
That is, if China agrees to the terms in the template petroleum service contract of the Department of Energy, governed by Philippine laws

MANILA, Philippines – The memorandum of understanding (MOU) between the Philippines and China signed during President Xi Jinping’s recent visit to Manila may pave the way for the “win-win formula” to the South China Sea dispute.

These were the words of Supreme Court Senior Associate Justice Antonio Carpio on Friday, December 7, during the Pilipinas Conference organized by Stratbase and the Albert del Rosario Institute. 

Carpio, a vocal critic of the Duterte administration’s handling of the West Philippine Sea issue, said the MOU might lead to a scenario where China agrees to develop oil and gas resources under Philippine laws.

There are indications that the MOU was designed to do just this, he said.

First, the MOU was drafted by the Philippines and not China. While the Chinese draft called for “joint exploration and exploitation of oil and gas,” the signed MOU allows only “cooperation in oil and gas activities.” This does not violate the Constitution, unlike the phrase “joint exploration” in which the Philippines “loses full control and supervision” over the resources, said Carpio.

Carpio also assumed that the service contracts to be entered by China National Offshore Oil Company (CNOOC) will exactly follow the model service contract to be found on the Philippines’ Department of Energy website.

“The model service contract of the Department of Energy in its first whereas clause states that the natural resources covered by the contract belong to the Philippine state,” he said.

The sample contract also states that the contractor must “comply with Philippine laws, rules, and regulations” and that “the governing law shall be Philippine law,” said Carpio.

One such relevant Philippine law is Presidential Decree Number 1459, which states that the Philippines must get not less than 60% of the net income, including all taxes paid to the Philippines, in the payment of service contractors.

If such regulations are followed, CNOOC would be merely a subcontractor of the Philippine service contractor or an equity holder of the Philippine service contractor.

“Clearly, under the signed MOU, there is compliance with the Philippine Constitution and there is no waiver of Philippine sovereign rights under the arbitral ruling,” said Carpio.

On the cusp?

A hopeful Carpio said the MOU may usher in a “3rd phase” he expects in the South China Sea conflict. In this phase, China agrees to a compromise with the smaller claimant states.

“In the 3rd phase, China will no longer claim sovereign rights in the exclusive economic zones of other claimant states but will be satisfied wth half of the income,” said Carpio.

The real test will be if the “cooperation agreements” to be finalized in 12 months will involve the service contracts that state Philippine law will govern the oil and gas activities with China.

“If China actually accepts this cooperation arrangement, then we will have found the formula for finally settling the maritime dispute in the entire South China Sea,” said Carpio.

“This formula will be acceptable to other claimant states. With the signing of the MOU, have we entered the 3rd phase? Are we on the cusp of finally settling the maritime dispute in the entire South China Sea?” asked Carpio.

The answer lies with the working group and intergovernmental committee formed by the MOU to hammer out the cooperation agreements in a year. – Rappler.com

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Pia Ranada

Pia Ranada is a senior reporter for Rappler covering Philippine politics and environmental issues. For tips and story suggestions, email her at pia.ranada@rappler.com.